Tip #3: Don't overpay for dividend stocks.
Investors should never overpay for a dividend stock. But even the best investments go on clearance every once in a while. That's the case today for Realty Income (O). The Escondido-based REIT has a dividend track record like Ventas and Federal Realty: Realty Income has increased dividends for over 19 years in a row. However, Mr. Market is not giving it the same attention as Federal Realty. That has resulted in Realty Income falling from a moderately expensive valuation back in May to a sound valuation today.
Analysts and investors use the price to funds from operations (P/FFO) ratio as a standard metric for valuing REIT securities. Based on that metric, Realty Income is a buy. Shares are currently trading at $37.86 with a P/FFO of 15.8. In addition, the dividend yield is 5.77%. I would make the case that this triple net REIT is trading in a sound margin of safety range.
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